With the New Year approaching, leaders across the European continent paused, as people usually do around this time, to take stock of their efforts in the past twelve months. What they faced was a lopsided picture. In the East, Russia’s prowess in foreign affairs had managed to tip the balance of power sharply away from the Old World, while in the West, E.U. statesman were confronted more starkly than ever with their own indecisiveness, which left them licking their diplomatic wounds as the year came to a close.

Without question, the hour belonged to Vladimir Putin. Nearing the end of his 13th year as Russia‘s leader, he took time out on Thursday afternoon to drink in the praise of admiring journalists at his annual year-end press conference. One starstruck Russian reporter presented him with a teddy bear. Another invited him to a party in Siberia. Given the microphone, yet another began to ramble, then nearly swooned, then broke into tears, while the most cogent compliment of many during the four-hour event came from a representative of the Iranian press. “Dear Vladimir Vladimirovich!” the journalist began. “It looks like 2013 is the most brilliant year ever for Russian foreign policy.” And he was right, which made it hard for Putin not to smile. He felt so secure in his power after the event that he granted a pardon to his oldest enemy, the imprisoned oil baron Mikhail Khodorkovsky, who walked free on Friday after spending nearly 11 years behind bars.

Across the continent in Brussels, E.U. leaders were gathered on Thursday and Friday for their annual summit with a whole lot less to celebrate. They had watched in the preceding month as their hold over Ukraine, the largest and most important country in Eastern Europe, slipped from their fingers and landed in Russia’s lap. Desperate for cash to avert economic collapse, Ukraine’s leaders had invited a bidding war for their allegiance, as the unaligned states of Eastern Europe have tended to do in recent years, Belarus being the prime example. In this case as in that one, the E.U. balked and backed away, while Putin stepped in with a lavish offer – a $15 billion loan and a steep discount for Ukraine on Russian natural gas. On Wednesday, when he presented the deal at a briefing in the Kremlin, the hall of Ukrainian statesmen broke into applause. Then, too, Putin looked up at them and smiled.

Perhaps the simplest lesson to be drawn from this outcome for Europe was best summed up by George W. Bush back in 2000, when the U.S. President famously remarked that winning consensus in government is “a heck of a lot easier” in more authoritarian countries. European leaders, like their American allies, just don’t have that luxury. Regardless of the geopolitical stakes, they cannot do what Putin did for Ukraine. They cannot just take a quarter of the rainy day funds set aside to support state pensions and loan it out to a foreign country on a whim. For the people of Europe, that is probably a good thing, but it still makes E.U. leaders seem outgunned in a face-off with Russia. “We are not able to make strong decisions, strong engagements, to spend money to develop our interests,” says Stefan Meister, a senior policy fellow at the European Council on Foreign Relations. “It is the weakness of how the E.U. works.”

And in the coming years, Russia will only continue to exploit that weakness. By 2015, Putin wants to have laid the groundwork for his Eurasian Union, the grand political vision he has referred to as “the will of the era.” Cobbled together from former Soviet states like Belarus and Kazakhstan, this alliance is meant to balance against the influence of the E.U. on the continent, making Moscow seem more like its center of gravity than Brussels. In many ways, the struggle for Ukraine was the decisive one in this contest, says Chris Weafer, a political risk analyst and consultant in Moscow. “And now it’s over,” he says. “The for-sale sign has been taken down in Ukraine, and it’s sold to Moscow.”

So far, E.U. statesmen do not quite seem ready to admit that and cut their losses. As the first day of their summit wound down, Swedish Foreign Minister Carl Bildt, the bloc’s outspoken point man on integration with the East, tweeted that Europe is still “ready to give Ukraine free trade, association and modernization partnership.” But Ukraine clearly doesn’t want it anymore. Speaking to reporters a few hours earlier, its President began taking his lines straight from Putin’s playbook as he warned the E.U. to start minding its own business. “Some countries should not meddle in our internal affairs and should not believe that they can be the bosses here,” President Viktor Yanukovych said. “I am categorically against having someone come here and teach us how to live.”

So the E.U.’s best option at this point is to salvage what’s left of its Eastern Partnership initiative, the mechanism it has been using to pull former Soviet states closer to the West. With Ukraine lost, the main consolation prize now becomes Moldova, the poorest country in Europe. “So regardless of the European Partnership, Europeans now need to coddle and warm Moldova as much as they can, to show how much Ukraine is losing out,” says Fyodor Lukyanov, a foreign policy expert in Moscow. Already, E.U. officials have started pushing for Moldovans to be granted visa-free travel, a privilege that both Russia and Ukraine have coveted for years.

But beyond these gestures, the E.U. will have to come up with a better strategy to counter Russia’s growing influence across the continent, a trend that seems to have caught the bloc flatfooted despite being clear in Putin’s rhetoric for years. “Now it is really clear that Russia is becoming more assertive,” says Joerg Forbrig, an expert on Eastern Europe at the German Marshal Fund in Berlin. “And it will be pushing Europe much harder on issues of the eastern neighborhood.” So in the coming months, Europe will have to find a way to win back some of the momentum it lost in Ukraine. But with all of its internal divisions and economic worries to deal with, “the EU is not ready to enter this competition,” Forbrig says.

Putin seems to realize that better than anyone. Asked at Thursday’s press conference about the struggle for Ukraine, the Russian President had his game face ready. “I’ll tell you like a lover of sport,” he said. “We only need to flex our muscles a little bit, and everything will become clear.” That kind of bluster, a mainstay of Putin’s style of diplomacy, is not exactly part of the repertoire of his counterparts in the E.U. And even if European statesmen could pull it off, it would be difficult to back up.